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Is UBS’s 8 million pound fine enough?

November 6, 2009

Not long ago, UBS was the pride and joy of its Swiss home. There it was, slugging it out with the big boys, and making a fair fist of joining the bulge bracket banks from New York.

That was before it all started to go wrong. The banking crisis produced a loss of $52 billion, but much worse has been the reputational damage done in that most Swiss of financial services, the discreet management of private fortunes.

The US authorities forced UBS to disgorge names of their citizens suspected of failing to pay enough tax on their hordes, squeezing a $780 million fine out of the bank in settlement.

Set next to that, the 8 million pounds that Britain’s Financial Services Authority has just extracted looks derisory. On Thursday the FSA revealed that UBS clients in London had lost 42 million dollars through the misuse of their accounts. The method was simple and old-fashioned; the employees would make a forex trade, and wait to see whether it was profitable before allocating it to an account. Heads they won, tails the client lost.

The bank has shut the stable door, and “deeply regrets” the affair (although not deeply enough to put a statement on its website). By 2007, when it took place, even the doziest compliance department should have long since ensured that this practice was impossible. Compliance at UBS was so fast asleep that they only woke up when a whistleblower told them. Bleating that the bank “has already taken full remedial steps” merely sounds pathetic.

Fining companies for the sins of their employees is always problematic, since the shareholders are footing the bill. In this case, the FSA might have insisted that UBS pursue the miscreants through the courts. That won’t bring back the $42 million, but it would force the bank to wash its dirty linen in public, as well as discouraging others who might be tempted to cheat this way elsewhere.

As it is, UBS is more likely to want to bury the affair with minimum publicity. A court case would cause even more of its valuable private clients flee to better-managed businesses, and who could blame them?.

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